Volkswagon is one of the leading automotive manufacturers that is heading down the path to bankruptcy. This is something that we discussed a great deal over the last couple years. It is now, however, being espoused by those within VW.
Company executives, in the case the CFO, are sounding the alarm. Naturally, you only have to look at the company's balance sheet to know how precarious this situation is. VW has a boatload of debt, much of it tied to plants that are becoming obsolete.
According to the CFO, the company has 1-2 years on its present path.
One of the issues is the lack of money coming out of China. This use to be a cash cow for legacy automakers. Over the past two years, the money dried up. Chinese car companies expanded their offerings, especially in the area of EVs. As this gobbled up more market share, the legacy companies saw sales decline.
This is having a huge impact on the Germans. The auto industry is a large portion of the national economy, pushing it into a recession. We might see a full blown depression before all is done.
For this reason, drastic changes are required. Here is where the problem arises.
Trying To Kill VW
VW is, for the first time in company history, going to have to close plants in Germany. It already has done some of this in other parts of the world. Of course, this is not sitting well with the unions.
So what is their response? Like most union, when things are going downhill, go on strike. Anyone who read my articles about Hollywood and what the two unions did there, knows the playbook. Of course, notice how poorly it turned out for those workers.
The German auto workers are going to find out the same thing.
We are only going to see an acceleration of the decline of VW. Any company that is beholden in this manner is going to see dire financial consequences cropping up.
As stated, the financial circumstances of VW are not looking good. Their EVs are losing money at a time when global market share of these products is growing. They are losing the largest auto market in the world, meaning they only have the US and Europe to depend upon.
The EU is cooked. There was a saying "as GM goes, so too does the US". This can be amended to "as the German economy goes, so too does the EU". It is still the Moby Dick of that economic zone.
Germany is suffering and is going to take the EU down with it. That means European sales could also struggle. This is the situation even before Trump, Mr. Tariff himself, takes office.
In a quest to save their jobs, these workers are going to lose it all. I do not profess to be knowledgeable on the worker protection laws in Germany and how well the obligations made to them are protected. For example, who is responsible for the pensions to the employees? More importantly, how it is backed? Anything that is coming from the companies themselves in in jeopardy.
Unfortunately, for that country, VW is not the only one in hot water. All auto manufacturers are seeing the same thing unfold. China is NOW a desert to them, providing nothing in terms of cash. As that dries up, the economies of scale start to reverse.
It is unlikely the German government lets VW go under. There will have to be a bailout. The problem is does this apply to all German auto companies? That is going to be tested in the future.
Disruption Destroys Industries
As with many of the topics we dive into, this is a classic case of disruption. These companies are dead. There is no future for them, at least not in their present form.
With disruption, there is a fundamental reason why companies are powerless. It has nothing to do with management being unaware, poor corporate decisions, or greedy workers. Certainly, these are factors that could feed into the situation, making it worse. Rarely, however, are they the cause.
The biggest problem facing legacy auto is simple. It is the classic reason for disruptions. Basically, it all boils down to this:
- the interest of the different stakeholders are misaligned.
Once this point is reached, it is over. The only way to move on is to aligned those interest. This usually means different parties being eliminated from the conversation.
With mobile phones, as an example, the resistance to smart phone technology meant the major players saw those divisions basically disappear. The same is true for long distance phone service.
Then we have Blockbuster which simply tried to pursue a dead path, resulting in the company going away.
VW will not end up like Blockbuster. We will see a scaling down of operations in many areas, with divisions either closed or sold off. The plants will be closed, one way or another. Workers are going to lose their jobs as the payroll is not sustainable. Government bailouts usually means greater oversight, something many applaud in the moment yet ultimately creates more problems in the long run. One of the first things that disappears is innovation and agility.
This will only open up the market for other companies. Look for the Chinese to eventually take advantage of this.
Posted Using InLeo Alpha
